Before the
National Cattlemen's Beef AssociationAnnual Convention and Trade Show
Live Cattle Marketing Committee
Charlotte, North Carolina

February 13, 1999

I am delighted to be with you here this morning, and I thank you for
the opportunity to talk with you about issues we are currently facing
at the CFTC, and that are of significant interest and import to your
membership. As you know, things are changing at the CFTC: the Chair
has announced that she will be living at the end of her term,
Commissioner Tull will be leaving the Commission at the end of this
month, and the President has recently made a new nomination to the
Commission. At the very least, one can say that there will be
leadership changes at the Commission in the near future. However,
please be assured that we will endeavor to provide a seamless
continuation of public service at the CFTC, and that your interests,
and the interests of all market participants, will be heard and
considered as we tackle the major issues before us.

Many of you already know who I am and where I come from, but let me
give a little background about myself for those of you I have not yet
had the opportunity to meet. I, along with my three brothers, grew up
on my family's cattle operation in Florida. For the last ten
years, I have worked as the Executive Vice President of the
Mississippi Cattlemen's Association and Beef Council, and
consequently, I tend to look at things from the producer's point
of view. I, like you, am proud of my agricultural background, and of
the values and work ethic it has provided. I think that it's
important for you to know that I did not grow up wanting to be a CFTC
Commissioner; in fact, I tried to turn it down, but Senators Lott and
Cochran would not take "no" for an answer.

I bring to the Commission a free market philosophy that is
pro-competition and pro-business, and, although I often find myself in
the minority, I still ascribe to the belief that our government should
be run by and for the people. Although some in Washington seem to
think this is an antiquated idea, I call it time-honored and
time-tested, and I hold to the conviction that in "governing best
by governing least," we foster those ideals which allow our
businesses, our farms, and our financial services to retain their
primacy in the global marketplace. Because of the beliefs I've
just described, I can make a commitment to you: just as I commend and
encourage those in the private sector for thinking "outside the
box" and for being innovative and creative in their business
activity, I can pledge to you that in my tenure as a Commissioner at
the CFTC, I will think "outside the Beltway" in making
decisions regarding appropriate regulation of those activities.

As you know, the Commission is facing yet another reauthorization.
Although this often elicits groans from those involved in the process,
I am looking at it as an opportunity: indeed, I believe that Congress
has the occasion now to address and resolve several key concerns of
both regulators and regulatees. Let me take a few minutes to address
some of those topics, as well as some other current regulatory issues.

FutureCom

FutureCom has applied to the CFTC to become an Internet-based futures
exchange, where participants can actually trade contracts
electronically, directly on the Internet rather than through an
intermediary. While this represents a sea change in the way risk
management tools have traditionally been transacted, it's clear
that electronic trading is part of the future for all of us, and,
indeed, I think this is only the first among many such efforts that we
will see in the years to come. Let me say that I commend Bill
O'Brien for his innovative thinking and his entrepreneurship; but
as he will tell you, when you're breaking new ground, sometimes
the soil can be pretty hard.

I certainly support the concept of multiple investment/hedging options
for producers and other industry participants; furthermore, I believe
all participants should have a level playing field in this area to
encourage pure competition. And, in accordance with my earlier comment
to you about thinking "outside the Beltway," I recently
convened a meeting of CFTC staff and FutureCom in order to help
facilitate progress on the regulatory side; and I believe that it was
a productive meeting. This type of innovative thinking raises some
regulatory issues regarding the guidelines of the Commodity Exchange
Act, and will probably need to be addressed in CFTC reauthorization.
In the meantime, I will continue to exhort CFTC staff to encourage,
not impede, creative market thinking. As responsible regulators, we
should work with the Congress to address regulatory challenges,
therefore encouraging visionary ideas.

Dual Trading

Dual trading refers to the practice of trading on the floor of an
exchange for both one's customers and oneself. As you know, in the
Futures Trading Practices Act of 1992 (FTPA), Congress directed the
CFTC to implement dual trading prohibitions in certain markets.
Several exchanges petitioned the Commission for exemptions from this
prohibition, and for the past several years the Commission and
exchanges have been working on these petitions. We all understand the
reason for Congress including this in the FTPA. However, that was ten
years ago. Times have changed dramatically since then: electronic
trading has become a reality in the marketplace and will become more
widespread in the coming years; and exchanges have, across the board,
made major improvements to their audit trail systems. The Commission
is in the process of final review of the Chicago exchanges'
petitions, and I expect and hope that those will be voted on in the
near future. While I won't prejudge the issue, I will certainly
review the exchanges' systems as a whole, and will make my
decision accordingly.

Agricultural Trade Options (ATOs)

An agricultural trade option is an agreement giving the agricultural
producer the right to deliver his or her commodity in the future for a
set price. The producer is not obligated to deliver and may simply
choose to "walk away" from the option contract. In return
for this right, the producer pays a fee, usually called the option
premium. Agricultural trade options would not be traded on a commodity
futures exchange, but directly between commercial parties.

As most of you know, there has been a long history of on-again,
off-again options trading, both on- and off-exchange, and that, in
large part, provides the basis for the circumstances we find ourselves
in today. Since 1974, there has been a gradual lessening of the
regulatory prohibitions on trading commodity options, the last of
which has been the lifting of the off-exchange agricultural trade
options ban. The Commission lifted the ban in April 1998 with the
introduction of a 3-year pilot program. The pilot program was the
result of long and intensive study and review at the Commission and
with various agricultural interests.

I was not at Commission during creation of pilot program, but support
the concept of additional risk-management tools. I am concerned,
however, about the usefulness of the pilot program under current
rules, and think the chairman of this live cattle marketing committee,
Mr. Paul Hitch, summed it up best at the CFTC Agricultural Advisory
Committee meeting last August. He said since we [CFTC] had the pilot
program open for a few months and had yet to have anyone register,
that we "might have perfected a hemorrhoid transplant. There is a
world of potential donors, but there are no willing recipients out
there."

In fact, the pilot program was launched over 9 months ago, but as yet
there have been no applications for participation. I have met with
industry participants in Chicago, Minneapolis, Kansas City, New York,
and there appears to be common areas of concern regarding the program:
overburdening paperwork requirements, the exemption level, the lack of
cash settlement ability, and registration issues.

All producers must protect themselves against downside price risk,
given the Freedom to Farm Act, increased market volatility, and most
recently, exceptionally low commodity prices. Most producers do not
use the futures market (only about 10 percent according to one study).
However, exchange-traded options have become increasingly popular
(trading volumes grown about 62% over last 5 years according to
Futures Industry Association estimates).

Given these dynamics, I believe that we must find a way to create a
product that is attractive to the agricultural sector, both producers
and agribusinesses, while ensuring the preservation of market
integrity, given the changing structure of agriculture. ATOs are one
alternative, but several things will have to change before the program
will have a chance to succeed. The Commission must first create a
program that is attractive, not only to farmers and ranchers, but also
to local elevators and other processing facilities. In order to
achieve such a goal, the process must be
industry-driven. Industry knows best what it needs and what will
actually work. To that end, Commissioner Spears and I are meeting with
industry participants to draft needed changes to the ATO program.

I believe that if the ATO program is successful, the exchanges would
see new business generated through the ATOM's need to hedge their
risk-- risk incurred when selling trade options to agricultural
producers. I am committed to working with you in order to make this
program a success. I believe that the more risk-management tools
available to industry, the higher the level of competition, and the
better the products will ultimately be. I am still optimistic about
the potential of ATOs to become a viable risk-management tool in the
future; however, if ATOs are not the answer, then we need to work
together to determine what is.

Foreign Terminals

On July 24, 1998, the Commission published a concept release regarding
the placement of foreign board of trade terminals in the United
States. In effect, this would allow foreign boards of trade to have
access to US customers, with lessened regulatory requirements. A major
concern about this matter is the issue of fair competition--the
argument is that if we allow foreign terminals to be set up over here,
then a US exchange should be able to set up terminals in foreign
jurisdictions, with similar regulatory treatment. I share this concern
and feel that equal access should be granted to our exchanges.
Commission staff is currently putting together final rules for
consideration by Commissioners, and I hope that this will move along
expeditiously.

Future Regulatory Challenges

The Commission must work with the Congress in determining how much
flexibility the Commission needs to address the changing technological
environment. Who would have thought 10 years ago that we would be
considering trading over the Internet? Who knows what technological
advancements in futures and options trading will be presented to us in
10 more years? These are issues in which both Chairman Lugar and
Chairman Combest have expressed an interest, and most likely will be
taken up during the reauthorization process.

Importantly, I believe we must decrease the regulatory burden on our
domestic exchanges in order for them not only to continue to compete
and prosper but to remain global leaders. The Commission must have the
flexibility to be innovative regarding those within the industry who
are creative and visionary. Finally, industry input will be critical
in this process; experience and common sense tell me that if market
participants can agree on basic issues, then Congress will respond.

CFTC Reauthorization

Senator Lugar pledged to begin reauthorization hearings early this
year. Many members of Congress have expressed concern regarding
actions taken by the CFTC over the last year, particularly with the
Commission's Concept Release concerning the Over-The-Counter (OTC)
Derivatives Market, and believe these issues should be addressed in
reauthorization process.

There is talk of more specifically defining the jurisdiction of the
CFTC, which could possibly lead to a reduction in CFTC authority or
some are even suggesting merging the CFTC with the SEC. The Senate and
House Agriculture Committees will hold a symposium later this month on
the Commodity Exchange Act and issues of importance for the upcoming
reauthorization. I am sure that several proposals will be introduced
or re-introduced during this discussion.

I believe that whatever action is ultimately taken by the Congress,
the agricultural emphasis can and should be maintained in a clearly
defined way, given the role commodity markets play in the
risk-management arena. I also feel that, as responsible regulators,
the Commission must be responsive to not only industry, but also to
the Congress as we work through reauthorization. We must work with
members of the Agriculture Committee to develop a regulatory scheme
that discourages fraud and manipulation; that doesn't impede, but
rather encourages innovation, technology, fair competition, and sound
business practices.

Thank you for the opportunity to be here; I look forward to working
with you in the years to come.